Aggressive Growth at Dick's

Dick's is growing fast, but how much should you pay for it?

Dick's Sporting Goods(NYSE:DKS) is a well-run sporting goods retailer with bright prospects, but that isn't exactly a secret in the stock market. What does that mean for investors going forward?

Let's look first at how fast Dick's is growing. Full-year 2006 results released yesterday demonstrate it is growing rapidly. Total sales increased 19% -- a strong showing, but due in part to the purchase of rival Galyan's. However, same-store sales grew 6% at the legacy Dick's stores, meaning acquisitions only account for some of the expansion story.

For 2007, management plans on aggressively opening 45 new Dick's stores and 17 of the recently acquired Golf Galaxy specialty golfing stores. That's on top of the 294 namesake and 65 Golf Galaxy stores currently in operation and represents 15% and 26% growth, respectively.

Earnings for 2006 advanced 50%, and Dick's expects another 18% gain for the upcoming year. Cash flow growth didn't keep pace for the year, but it has grown more than 50% in each of the past five years as the company has grown internally. More recently, Dick's has been able to cost-cut and bring Galyan's into the fold, with likely benefits from Golf Galaxy going forward.

In term of what investors would need to pay up to invest in Dick's: It trades at a rich 27 times trailing earnings and 22 times forward earnings. That could look cheap in retrospect if the company is able to keep growing in the double digits, but doesn't seem to factor in much downside should same-store trends suddenly slow or an acquisition proves troublesome to integrate.

Plus there's the competition. The sporting goods space is very crowded, and merchandise can be found at big-box giants such as Target(NYSE:TGT) and Wal-Mart(NYSE:WMT) and regional chains such as Big 5 Sporting Goods(NASDAQ:BGFV) and Hibbett Sports(NASDAQ:HIBB). There's also Cabela's(NYSE:CAB) and Gander Mountain(NASDAQ:GMTN) to consider, as they open stores to capture the outdoor-enthusiast market.

Add it all up, and I see as much downside risk as I do upside potential. I'm always looking for opportunities to pay up for growth, but in Dick's case I currently find the price too rich for my blood.